Monday, March 26, 2012

Keeping you updated on the market -for the week of March 26, 2012


Mortgage lending rates have been on the rise, and they've been on the rise in a big way. Over the past week it's possible that someone inquiring on the 30-year fixed-rate loan could have been quoted a price 50-basis points higher than what was available a month ago.
Rates have pulled back slightly, but they remain elevated compared to February's lows. We expect them to remain elevated. Markets appear less risk averse: Investors are no longer huddling behind U.S. Treasury securities every time Greece hiccups. The major stock market barometers – the Dow Jones Industrial Average and the S&P 500 Index – are approaching four-year highs.

In short, investors want more return. They are less satisfied with the 2% return offered on 10-year U.S. Treasury notes, which makes these notes more risky. If more investors demand a higher coupon payment, more investors will sell low-coupon Treasury securities, thus forcing the yield on these securities to rise.

As U.S. Treasury note and bond yields go so goes mortgage-backed securities yields and so goes mortgage lending rates. We are not terribly concerned though. We don't think rising rates will crimp the housing recovery, because higher economic growth and rising employment will more than offset higher interest rates.

Home builders appear to share our sentiment. The National Association of Home Builders sentiment index shows optimism has risen to a five-year high. This suggests to us the bust is officially over and that housing is on sustainable growth trajectory.
That said, housing starts did edge down in February, but from an upwardly revised January posting. Permits were the positive takeaway, increasing 5.1% for the month.
Last week we mentioned that if we saw a reversal of fortune in Las Vegas, then the housing recovery has likely turned the corner and become a nationwide phenomenon. This might just be serendipity, but, lo and behold, the FDIC reports that single-family home permits in Nevada increased 16.1% in the fourth quarter of 2011 compared to the fourth quarter of 2010. Maybe miracles really do happen.

Like new-home sales, existing-home sales are also displaying sustained strength. Sales dipped slightly – by 0.9% to 4.59 million annualized units – in February, but the data follow an extremely strong and upwardly revised January sales posting. Over the past six months, sales have been trending perceptibly higher.

We are further encouraged by the trend in existing home prices, which have been firming and moving higher in 2012. The median price of an existing home moved up 1.3% to $156,600 in February.

Overall, we like the direction the housing market has taken. We also like the idea of mortgage markets moving to more normalized, market-driven pricing. We think this points to a much stronger, sustainable market over the long term.

Economic Indicator, Release Date and Time, Consensus Estimate, Analysis

Pending Home Sales Index(February)
Mon, March 26,10:00 am , et
98 Index
Important. Recent readings point to higher private residential real estate investment.
Consumer Confidence(March)
Tues, March 27,10:00 am , et
72 Index
Important. Economic growth is outweighing higher gasoline price concerns.
Mortgage Applications
Wed., March 28,7:00 am , et
Important. Purchase applications have been resilient despite the spike in interest rates.
Gross Domestic Product(4th Quarter 2011)
Thurs., March 29,8:30 am , et
3.0% (Annualized Growth)
Important. Growth above the psychological 3% level could push interest rates higher.

Time to Return to the Real Lending World

One of our soap box issues over the past year has been the lack of private lending money. Our interest was naturally piqued when we read that Institutional Risk Analytics released a report titled "The Real Role of Banks in Residential Mortgage Finance."
The report basically expounds many of our concerns: The Federal Reserve's low-rate policies are discouraging private money from entering the mortgage-backed securities market, which means many lenders have to adhere to the strict standards of Fannie Mae and Freddie Mac. Having the market dominated by the Federal Reserve and two government-backed entities attenuates private credit formation.

Rising mortgage lending rates would draw more private capital into the market, which means there would not only be more credit but more credit that would meet the demands of a more diverse group of borrowers.

To be sure, the spike in rates we've seen over the past week has taken the wind out of the refinance boom. But as more borrowers realize that higher rates are more likely than lower rates, more borrowers will be motivated to act and more lenders will be motivated to lend.
It's also worth remembering that even if mortgage lending rates rise above 5%, the monthly payment on a median mortgage would make up only 14% of the current median income, because homes are so affordable these days. Rising rates would not disrupt the market, they would simply reset expectations to market reality.

Article courtesy of Patti Wilson, Senior Loan officer Mutual of Omaha Bank.

Check out my website to see current pricing on the islands.

Monday, March 19, 2012

Keeping you updated on the market. For the week of March 19, 21012

So what's up with home prices? That is, are home prices up? Over the past two months we've reported on a slew of data that show prices are down, but the data have been somewhat stale: much of them focused on the last quarter of 2011.

Where prices are going, not where they've been, matters. More contemporary data – the data most likely to portend the future – show prices on the rise.

RE/ MAX reports that home prices increased year-over-year in February for the first time in 18 months. RE/ MAX opines that the turnaround signifies “a very active selling season.”
We agree, because the price increases were much steeper in many local markets than we had anticipated. Miami posted a 20.5% year-over-year gain; Phoenix, a 12.5% gain; and Detroit, a 8.9% gain. Not so long ago, these three burgs were in full free-fall mode. (When Las Vegas shows a double-digit year-over-year percentage price increase, you can be sure the recovery has spread nationwide.)

The outlook is also looking rosier for new home sales. The home builder sentiment index has been rising for the past five months, and the rising optimism appears justified. Barclays Capital reports that initial data for the year are encouraging, noting that “the spring selling season has arrived strongly enough to kick-start a positive feedback loop in housing for the first time since 2005.” Barclays raised its rating on a number of home builder stocks.

Signs of a sustained rebound are also reflected in mortgage purchase applications, which have been rising over the past month. The MBA reports that purchase applications are nearly 12% higher than where they were just a month ago and are approaching the level when the federal home-buyer tax credit fueled the market two years ago.

More purchase activity is understandable: Affordability remains high and mortgage loan rates remain low. The prime 30-year fixed-rate loan still hovers around 4% (and when we say “around” we mean mostly above lately).
Rates have been on the rise, though, and this isn't a surprise. Over the past two weeks, the yield on the 10-year U.S. Treasury note is up 30 basis points. Long-term mortgage lending rates take their queue from the 10-year U.S. Treasury note, which guides the rates on long-term mortgage-backed securities. Where the yield on the 10-year Treasury goes, mortgage lending rates generally follow.

We've been saying since the beginning of the year that we couldn't see rates dropping materially lower. The corollary is the risk of rates moving higher is likely rising. The scuttlebutt we're hearing is that some lenders are already looking to 4.5% to 4.75% by June.
Rates are rising for a number of reasons. The economy is improving and investor confidence is rising, which means investors are becoming less risk averse. Money is flowing out of the bond market and into the stock market, thus pushing yields on bond investments higher and yields on stock investments lower.

It's impossible to know with certainty where mortgage lending rates will be in three months, but if the choice were between 3.5% and 4.5%, we'd give you dollars-to-donuts odds on the latter.

Economic Indicator, Release Date and Time, Consensus Estimate, Analysis:

Home Builders Index(March)
Mon, March 19,10:00 am , et
30 Index
Important. Rising optimism points to a rising new-home sales through the summer.
Housing Starts(February)
Tues, March 20,8:30 am , et
702,000 (Annualized)
Important. Starts continue to expand toward a more normalized rate.
Mortgage Applications
Wed., March 21,7:00 am , et
Important. Gains in purchase applications point to monthly strength in home sales.
Existing Home Sales(February)
Wed., March 21,10:00 am , et
460,000 (Annualized)
Important. Rising sales on firming prices reflect a strengthening housing market.
New Home Sales(February)
Fri., March 23,10:00 am , et
330,000 (Annualized)
Important. Sales finally appear to have developed a sustainable uptrend.

Time's a Wastin'
The economy continues to improve at an accelerating pace: Jobs are now being added at a minimum rate of 200,000 a month and unemployment has fallen in 45 states and the District of Columbia .

More people working and more economic growth means the overhang of REO and distressed properties will be be picked over sooner rather than later. It also means more pressure on interest rates to rise.

Yes, the Federal Reserve is doing everything in its power to hold interest rates low. It continues to reinvest principal payments from its holdings of Treasury notes and bonds and mortgage-backed securities into more mortgage-backed securities. The Fed's demand for these securities helps hold lending rates low. Problem is, the Fed lacks the power to stem market forces in perpetuity. If the market demands higher mortgage rates, it will eventually get it.

Given the surge in demand that will occur with HARP 2.0 and a continued rise in purchase applications, we think it is riskier than it has been in years to wait to refinance or purchase a home. In other words, we think the market will get its wish for higher lending rates sooner than many home buyers or refinancers think.

Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.

Tuesday, March 13, 2012

NAR: Tax rumor keeps spreading

WASHINGTON – March 13, 2012 – Contrary to a viral email that seems to die out but then return with a vengeance, there is no across-the-board real estate tax starting in 2013.According to the National Association of Realtors® (NAR), there is a new real estate tax effective in 2013, but it will affect very few sellers – only people with a high annual income who turn a sizable profit on their home sale.

A 3.8 percent levy on certain investment income was included in healthcare legislation two years ago. Part of that investment income includes capital gains from home sales for individuals who make $200,000 per year or more, or married couples who earn at least $250,000. However, even these individuals won’t pay the tax unless the home sale earns them over $250,000 for an individual or $500,000 for married couples. And even if someone qualifies under these two conditions, a tax may still not be levied. Other tax details are considered before the 3.8 percent tax kicks in.

NAR recommends that Realtors become familiar with the tax, but they avoid coaching their clients because the tax details are complicated. The actual tax due will vary from individual to individual because the elements used to calculate “adjusted gross income” differ from taxpayer to taxpayer.

NAR has published a brochure on how the tax works, which is now available online. Download the 3.8% tax brochure (PDF).
© 2012 Florida Realtors®

Monday, March 12, 2012

Keeping you updated on the Market

March 12 , 2012
Home prices continue to garner front-page attention. CoreLogic reports that prices declined for the sixth-straight month in January, dipping 1% from December. Year-over-year prices are down 3.1%. In short, CoreLogic says that prices are about where they were 10 years ago.
CoreLogic offers one set of data on home prices, Clear Capital offers another, less ominous set. According to Clear Capital, national home prices declined only 1.9% year-over-year. What's more, its data show short-term prices being more stable, with prices falling only 0.6% from the third quarter to the fourth quarter of 2011.
Everyone is keeping a close eye on distressed properties. Now that last year's “robo-signing” foreclosure imbroglio is behind us does that mean we will see a surge in foreclosed and REO properties? And if so, how will they impact inventory and prices?
Pertinent questions, to be sure, and ones we don't have a ready answer for. We do know that the inventory of existing homes for sale declined 21%, or by 600,000 units, in 2011. At the most recently reported sales pace, that means we are looking at 6.1 months of supply – the lowest inventory level since April 2006. Lower supply supports higher prices.
Today's low inventory is attributed to falling foreclosure volume. But now that banks are free to foreclose, two million more homes are expected to hit the market over the next two years. If that's the case, then distressed inventory will rise sharply. Returning to economics: higher supply leads to lower prices.
There are a few extenuating factors though. The economy is improving, and continues to add jobs at an increasing rate. The private sector added 216,000 jobs last month, according to the latest national employment report from Automatic Data Processing. That's a significant increase over the 173,000 jobs added in January. More people working means more people who can afford a home.
The rise in REO properties could be offset by a decrease in other market segments. For instance, there was a significant increase in short sales in the fourth quarter of 2011, which pushed the number up to nearly 910,000 units nationwide. That said, the long-term trend for short sales is down; fewer short sales could be a counterweight to rising REO units.
Housing formation is another attenuating factor. After 2007, household formation plu mm eted to 300,000 per year from its historical rate of 1.25 million. We see a lot of pent up demand. The population continues to grow, the economy continues to improve, home affordability is at a multi-decade high. The market is ripe for a spike in new household formation.
In short, we don't expect new REO properties to upset the housing recovery like the more dire pundits are predicting.

Economic Indicator, Release Date and Time, Consensus Estimate, Analysis.

Retail Sales(February)
Tues, March 13,8:30 am , et
1.1% (Increase)
Important. Sales remain robust on improving consumer confidence.
Federal Reserve FOMC Meeting
Tues, March 13,2:15 pm , et
Federal Funds Rate: 0% to 0.25%
Important. The Fed will hold short-term rates low and monitor agency debt in order to hold long-term rates low too.
Mortgage Applications
Wed., March 14,7:00 am , et
Important. The rise in purchase applications points to an encouraging start to the spring buying season.
Producer Price Index(February)
Thurs., March 15,8:30 am , et
All Goods: 0.4% (Increase)Core: 0.2% (Increase)
Moderately Important. Producer prices are heating up, but credit markets remain unfazed.
Consumer Price Index(February)
Fri., March 16,8:30 am , et
All Goods: 0.5% (Increase)Core: 0.2% (Increase)
Important. Deflation is no longer a concern, though rising consumer inflation could cause some Fed members to rethink the Fed's low-rate policies.

Ready, Set, Refinance
We expect to see a surge in mortgage applications in coming months. Couple low rates with HARP 2.0, the federal mortgage program that will enable millions of underwater homeowners to tap the mortgage market, and mortgage loan demand is sure to grow.
The combination of low rates and HARP 2.0 alone is enough to send business through the roof. Now we get word the Obama administration wants to allow more homeowners to refinance by dropping fees on federally insured mortgages. The administration's plan has the FHA dropping upfront insurance premiums on streamline refinances from 1% to 0.01%. The FHA would also drop annual premiums from 1.15% of the loan balance to 0.55%.
There is one catch: the lower fees only apply to borrowers who took out loans before June 1, 2009 . Still, lower-fee FHA loans are expected to help two to three million borrowers refinance.
The prospect of rising mortgage demand is worth keeping in mind as we head into the spring and summer selling season. Lenders will be busy, and sometimes very busy. Our advice, which we've offered in the past, is not to wait. For buyers, home affordability has never been better; for refinancers, rates have never been lower.
Given the present market dynamics, we think the risk of waiting to refinance or to buy a home far outweighs the possible reward of a lower home price or a lower interest rate.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.

Sunday, March 4, 2012

Keeping you updated on the market. For the week of March 5, 2012.

Home sales have developed a positive up trend in the past six months, and it appears that trend will be sustained at least into the near future.
The pending home sales index rose 2.0 percent in January to hit 97, the highest reading in nearly two years. New contract signings were particularly strong in the South, which posted an impressive 10.5-percent gain. The good is that the rest of the country isn't lagging far behind: national year-over-year contracts are up 8.0 percent.
Lower prices are an obvious factor in driving sales volume. While lower prices drive demand, they also reduce supply. Home supply has been dropping nationally for some time now, though concrete numbers are tough to gauge given the uncertainty over the hidden inventory of foreclosed properties. The estimates we've seen on these shadow homes range between two million to four million nationally.
Whatever the actual numbers are on distressed properties, it appears many markets have already reached peak saturation, which means levels should begin falling. According to analysts at Clear Capital, Atlanta and Tuscon, Ariz. are two regions likely to see a drop in REO properties during the year. We wouldn't be surprised to see similar prognostications forthcoming for Las Vegas, Phoenix, and Central California.
The fact markets are reaching an REO saturation point is one sign that housing is reaching a tipping point. Affordability is another. In many parts of the country, affordability is at a multi-decade high.
We've been preaching over the past year that residential real estate is the investment for the next decade. We stand by our exhortations. Unfortunately, many potential buyers still feel otherwise. They are weary of catching a falling knife; that is, buying a property that will continue to depreciate.
Falling knives were a very real concern three years ago; that's not the case today. Yes, home prices nationally could continue to fall, but you always have to look past national numbers to the local market – many of which are rebounding.
Mortgage rates are another reason we like real estate. Rates continue to skim along a 60-year low. But the economy is improving – GDP posted a better-than-expected annual 3.0-percent growth rate for the fourth quarter of 2011. What's more, job growth has accelerated and unemployment has dropped. In other words, rates are unlikely to go much lower.
Costs associated with mortgages could go higher, though. The buzz on the new HARP 2.0 is growing louder and attracting many underwater borrowers keen to refinance. The buzz will grow even louder over the next month as interest intensifies.
Rising loan demand tilts the table toward lenders, so we think its prudent for potential buyers to not wait and to take advantage of what remains a very low-cost mortgage financing market.

Economic Indicator
Release Date and Time
Consensus Estimate
Factory Orders(January)
Mon., March 5,10:00 am , et
0.5% (Increase)
Moderately Important. Manufacturing continues to lead the economy's recovery.
Mortgage Applications
Wed., March 7,7:00 am , et
Important. The rising percentage of purchases to refinances reflects greater interest in leveraged real estate.
Consumer Credit(January)
Wed., March 7,3:00 pm , et
$10 Billion (Increase)
Important. The uptrend in credit use reflects rising consumer confidence and continued economic growth.
Employment Situation(February)
Fri., March 9,8:30 am , et
Unemployment Rate: 8.3%Payrolls: 208,000 (Increase)
Very Important. Continued strong job growth could force the Federal Reserve to rethink its low-interest rate policies
International Trade(January)
Fri., March 9,8:30 am , et
$48.8 Billion (Deficit)
Moderately Important. A depreciating dollar and higher oil prices have raised the deficit over the past two months.

The Foreclosures-to-Rental Solution
We tend to become more cautious when a theme grips the market. Residential rental property is the hottest theme these days. Even the great Warren Buffett is bullish on rentals, declaring that he would buy a couple hundred thousand single-family homes and rent them, if only he had a way to manage them.
Another prominent supporter of rentals, Lewis Ranieri, the co-inventor of the mortgage-backed security, lays out the case in a research paper for using federal entities to support converting foreclosed properties into rentals. According to Ranieri, his foreclosure-to-rental model can be developed in “most every market in the United States,” and thus help clear the distressed-housing overhang.
We see a few unintended consequences, though. When markets don't develop organically, there tends to be inefficiency – you get too much or too little of something. Just look at housing six years. The market was incentivized for more home ownership, and we got too much of it.
Single-family rental properties are fine, to be sure, but large swaths of single-family rentals might not be. Rents are rising, but they don't always rise. Rents impacted capitalization rates. If rents drop, so will capitalization rates and property values. In addition, renters don't care for properties as well as owners. Could a higher percentage of neglected properties translate into more downward price pressure for owners?
All we're saying is that before we ask for something we need to be sure we really want it; unintended consequences can be very costly in the long run.
Article courtesy of Patti Wilson, Senior Loan Officer, Mutual of Omaha Bank.